Thursday, November 3, 2016

Air France : a new low-cost airline… but not for the passengers – The Obs

Jean-Marc Janaillac, the new CEO of the Air France-KLM group – and now president-in premium from the company Air France to drive its own recovery – has at least managed one of the points that he had made since his appointment three months ago : the project “Boost” remained a secret until its unveiling on November 3 in the morning.

Jean-Marc Janaillac, a Dutch fly Air France

To revive Air France, Janaillac will launch a new subsidiary to reduced costs – but that will not be low-cost for passengers. This “Air France bis” is the cornerstone of the plan “Trust Together”, which should enable the group to resist the”hyper competition” of the companies in the Gulf, like Emirates and Qatar Airways, but also to the development of low-cost classic on the european network.

Low cost for employees

This new company, whose name is not yet fixed, will be a model : the Dutch KLM, the more powerful now that its sister company. To reduce costs, “AF Bis” will not have a first-class : it will hold a business-class for business men and it will be a tourist class standard to the other. The service will not be “low cost”, however : the baggage or meals will be included in the ticket… But the staff has a special status.

The pilots who will fly with it will remain under the status Air France but with conditions of work different. For the hostesses and stewards, by contrast, the rules will change : they will no longer be the status Air France, considered to be too favourable by the management. They will have conditions similar to those of Transavia, the company truly low-cost group. In other words, Air France wants to reduce its costs, but without reducing the service.

Little changes for passengers

In regards to the passenger, is this what it means that he will travel less expensive on Air France ? Not necessarily… Air France account simply fly by ceasing to lose money on its destinations to the most attacked, but without reducing its revenue per unit.

today, Air France earns more money on its network of medium-haul to Europe, in competition with Easy Jet and other Ryan Air. And on most lines to Asia, attacked by Emirates, Etihad, Qatar or Turkish airlines. So these are the flights to India, Thailand or Vietnam, which could spend a little at a time, the flag “bis”, and those towards the tourist cities in Europe, representing 10% of long-haul flights, and 20% of medium-haul routes, in a first time. It is more than likely that the percentage then climbs over the years…

The first flights are planned for next summer in Europe and for the 2018 winter elsewhere. To reassure the staff and to avoid a new strike, Jean-Marc Janaillac is committed to ensuring that there are no layoffs, and no new plan of voluntary departures : the departures retirements massive that it anticipates from 2018, should allow to manage the transfer of staff to the new pavilion for social rights reduced.

Return to growth

The company could face its biggest challenge : invest in the renewal of the fleet. Currently, Air France is certainly a profit but not enough. First, these profits are outstanding : the company has returned to profitability last year, after eight years of losses, and due to the drop in oil. These good results are already in decline this year : over the last quarter, the operating margin has already declined from 12% to 10.6% of turnover compared to the 3rd quarter of 2015. The group is heavily indebted ($ 4.1 billion), and its share price is too low to allow him to launch a capital increase. It cannot, therefore, rely on him, and its cash-flow, to fund its future investments. The conclusion of a CEO is simple : if it fails to lower its costs and increase its profitability, it may not develop.

The new company “Air France bis” will be the primary response to this internal crisis. It will : simplify the business, enable it to react more quickly, develop Transavia in France on the routes attacked by the TGV like Paris-Bordeaux. For the staff of Air France, this is the end of a golden age social – if this golden age ever existed, but it is in any case an alignment on the practices of low-costs or companies in the Gulf, is much more demanding with their sales staff.

The staff, rightly, will he / she play the game ? It has already gone on strike twice this year, on topics anecdotal. This time, the issue is much more critical to its future ! This is the challenge of the social negotiations that will open. In exchange for this sacrifice, Jean-Marc Janaillac will promise growth and new aircraft… Air France and KLM would increase from 91 million to 100 million passengers per year. Will this be sufficient ?